Romania’s Current Account posted a EUR 261mn deficit for January-March, reversing a EUR 6mn surplus in the same period last year – the country’s central bank reported. Nonetheless, the rolling 12-month C/A gap has marginally narrowed from one month earlier to EUR 1,784mn [1.2% of GDP] at the end of March, while remaining not far from the minimum level of EUR 1,353mn [0.9% of GDP] reached at the end of January. Even if the C/A gap is expected to widen on medium term driven by rising domestic demand, neither official not independent forecasts indicate that the gap could widen to more than 2% of GDP in the coming couple of years.

The deterioration of the C/A position in Q1 this year was caused not by the trade segment – where the surplus actually strengthened from EUR 32mn to EUR 166mn, but by the sharp rise in the outflows of incomes [mainly dividends repatriated by FDI companies operating in Romania]. Such outflows expanded by 69% y/y to EUR 1.8bn, in gross terms, and the EUR 729mn nominal rise would have resulted in even wider C/A gap if it was not partly offset by the larger trade and current transfers surpluses.

The inflows of current transfers, typically wage remittances and mainly EU funds absorbed, increased by 35% y/y to EUR 1.1bn in net terms and by 25% y/y to EUR 2bn in gross terms.  They are expected to continue having a positive impact on the country’s external balance in line with the intensity of the absorption of EU funds.

Non-residents’ direct investment in Romania increased by 30% y/y to EUR 570mn. Out of the total, the equity stakes (including earnings gained and reinvested by FDI companies) amounted to EUR 514mn and intragroup loans to EUR 56mn.